... what the value of the different types of resources would be and, at last, how the income of the production would be spread among the productive factors. Therefore, the classical model of output and employment is based on the statement that equilibrium in the economy is full employment, and if there were unemployment it would be frictional unemployment, which means that people are just changing jobs. In order to have a broad outlook of that model, we have, first of all, to refer to its main tenets and then analyze them. The classical theory supposes that prices of goods and services, of labour and of money are flexible. There has always been a great controversy over the fact that flexible prices would make sure that saving equaled investment (S=I), imports equaled exports (M=X) and if the government were to 'balance its budget' and make taxation equal to government expenditure (T=G), then total ...

See this essay or coursework document in full right now